(Reuters) July 26, 2010 – Mexico’s private pension funds are set to invest up to $600 million in three private equity deals in the coming weeks, as they stock up on riskier assets that promise bigger yields, market sources said.
The private equity funds will bankroll warehouses, distribution centers, and other industrial real estate projects that promise higher returns than the much safer bonds that make up the bulk of the pension funds’ holdings.
The new investments will also help achieve an objective of Mexican President Felipe Calderon, who has said he hopes the cash-rich pension funds, known as Afores, will spur infrastructure development.
“We are long-term investors with a large amount of money so, yes, we are going to invest more and more in these securities,” said Andres Hammar, director of the HSBC’s pension and insurance business in Mexico.
Mexico’s 14 Afores may allocate 8 percent of their nearly $100 billion in assets to “capital development certificates,” which regulators conceived as a way for the pensions to make private equity bets.
Using those new securities, Mexican pensions have dipped their toe into riskier investments such as the $268 million combined stake seven pensions took in an infrastructure fund conceived by Macquarie Group earlier this year.
The Afores purchased about $1 billion worth of those securities in 2009, and they are on pace to expand those holdings by more than $1 billion this year.
Hammar did not comment on near-term deals but said he expects HSBC, which operates one of Mexico’s smaller Afores, will invest in at least two such projects this year.
The three private equity funds seeking investors include two backed by leaders in global real estate investing — Prudential Financial Inc. and AMB Property Corp — as well as a home-grown infrastructure fund, Promecap, said three industry sources familiar with the deal.
Promecap, founded by airport magnate Fernando Chico Pardo, is seeking an investment of 2.5 billion pesos ($197 million), while Prudential wants to raise 2 billion pesos ($157 million), the sources said.
“We are just sorting out a few final details,” said Promecap general director Federico Chavez, who did not comment on specifics. “We are very close to a final filing.”
AMB hopes to close on a 3.3 billion peso ($260 million) offering according to a prospectus filed earlier this month.
Promecap and AMB could be placed as soon as this week while the Prudential deal could be done by early August, an industry source said. While several Afore private equity deals have been in the $125 million to $225 million range, a finance source said the Prudential deal could be closer to $240 million.
“We believe renewed activity within a recovering global manufacturing sector will lead to increased demand for industrial space in Mexico,” Prudential Real Estate Investors said in a statement.
EMX Capital, a private equity fund that has focused on businesses that reach Mexico’s growing middle class, has also been welcomed by several Afores and could sell a stake to the pensions in the coming months, industry sources said.
Dozens more private equity funds are making their pitch to the Afores, but only seven of those have been reviewed by Boston Consulting Group and are in the near-term pipeline, the sources said.
Mexico’s private pension system was created 13 years ago, and the retirement accounts are stuffed with roughly 80 percent government bonds and debt from corporations considered to be safe for investors, especially compared to its peers.
Its conservative investment profile helped it weather the recent financial crisis.
While Chilean pension funds whipsawed with a 25 percent decline in 2008 and a 20 percent rebound in 2009, Mexican pension funds were virtually flat in 2008 and recorded a 14 percent increase last year.
Still, Calderon’s government and the Afore regulator have encouraged the pensions to expand their holdings of more aggressive securities so that they can meet the needs of future retirees.
By Patrick Rucker